The oil and natural gas industry has embarked on a lavish
borrowing spree this year, underpinned by a federal bailout of corporate debt
markets in response to Covid-19, a new analysis has found.
Oil and gas companies, already in dire financial straits
before the pandemic, have issued $99.3 billion in debt in U.S. markets since
March 23, said the report authored by nonprofit organizations Friends of the
Earth, Public Citizen and BailoutWatch.
On that date, the Federal Reserve Bank, aka the Fed,
announced it would purchase corporate bonds for the first time ever through a
program called the Secondary Market Corporate Credit Facility (SMCCF) as an
emergency measure to keep financial markets afloat amid the pandemic-driven
The oil and gas industry, “heavily indebted and struggling
long before the coronavirus, is now benefitting substantially from the central
bank’s bailout of the corporate debt markets,” researchers said.
An analysis of Securities and Exchange Commission filings
and market data “reveals troubled companies, some on the brink of insolvency,
exploiting the federal response to Covid-19 to secure a lifeline…The borrowing
includes a wave of refinancing often resulting in later payment deadlines,
substantially lower borrowing costs, or both.
“In effect, the Fed is forestalling the demise of an
industry that has always relied on government largesse.”
The Fed had purchased debt from 19 operators since the March
announcement, researchers said. Those companies have since sold more than $60 billion
in new bonds to investors, or about 60% of the debt issued during the period.
Of the 19 companies, 12 have received credit rating
downgrades of their short-term debt, long-term debt, credit or default ratings
since March, researchers said. These firms include onshore heavyweights EQT
Corp., Marathon Oil Corp. and Continental Resources Inc.
“When consumers take on too much credit card debt, they can
be forced into bankruptcy and face financial ruin,” said co-author Public
Citizen’s Alan Zibel, research director for the think tank’s Corporate
Presidency Project. “This bailout is an unprecedented rescue of a dying
industry. Instead of bailing out climate-destroying fossil fuel companies we
must assist small businesses, local governments and individuals facing dire
The report’s authors cited a recent forecast from Rystad
Energy that up to 190 oil-related bankruptcies could occur by the end of 2022
if oil prices remain low.
In the past few days, Houston-based independent Oasis
Petroleum Inc. and oilfield services giant Superior Energy Services joined the
growing ranks of U.S. energy firms entering voluntary bankruptcy protection.
Year-to-date, oil and gas companies incorporated in the
United States have issued $129 billion in new bonds, researchers said, citing
Bloomberg data. That is a record for the period going back at least a decade.
“The first three quarters of 2020 represent the highest
level of debt issuance for that period since at least 2010,” researchers said.
“This surge in borrowing was made possible by the Fed’s promise to purchase
large quantities of corporate debt.”
At the end of August, the Fed held an estimated $355.5
million in fossil fuel bonds, researchers said, up $40 million from July.
The bonds were issued by companies ranging from integrated
majors such as ExxonMobil and BP plc, independents including Apache Corp. and
Continental, and midstream operators like Enterprise Products Partners LP and
Williams, the authors said.
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